The Baby Boomer generation, often a source of both admiration and controversy, has managed to stir the financial pot once again. Since the close of 2019, boomers have added a staggering $14 trillion to their net worth, defying conventional retirement and wealth accumulation expectations. In this deep dive, we unravel how boomers amassed this wealth, explore their financial maneuvers, and consider how younger generations might navigate their own paths to prosperity.
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How Boomers piled on $14 trillion of wealth
At first glance, the notion of boomers accumulating such a monumental wealth surge might seem perplexing. After all, many are no longer part of the workforce, having gracefully transitioned into the realm of retirees. However, the numbers tell a compelling tale. The aging boomer population, which constitutes 11% of the total population, has remarkably amassed a whopping 30% of the country's wealth.
This age demographic holds much of their wealth in their homes and retirement/investment accounts like 401ks, IRAs, brokerage accounts, etc. During the pandemic, the surge in home values and stock prices acted as a catalyst, favoring those with stakes in real estate and equity markets.
Further, despite the conventional wisdom that pegs retirees as entirely disengaged from the labor force, a significant portion of individuals aged 70 and above is still clocking in. The labor force participation rate for adults aged 65 and over, which touched a historic low of 10% in the mid-1980s, has nearly doubled. Even as the pandemic prompted early retirements, many in this age group opted to remain in the workforce.
Boomers vs. everyone: A generational wealth tug-of-war
Contrasting this wealth boom, the generational wealth dynamics tell a different story. Americans between 40 and 70, usually hitting their earnings peak, holding a diminishing share of household wealth compared to 2019. The boom in older Americans' wealth is especially stark when analyzed over a longer age span.
In 25 years, the aggregate wealth of those aged 70 and above has multiplied six-fold, reaching a staggering $43.3 billion. In contrast, the wealth of the under-55 demographic merely doubled during the same period.
The driving force behind this discrepancy is the pandemic-induced market surge and the strategic positioning of older Americans in the stock market. Since 2019, this demographic has collectively garnered around $5 trillion in equity gains. As of the third quarter, nearly 38% of the nation's corporate equities and mutual fund shares were in the hands of individuals aged 70 and older, marking the highest share in data stretching back to 1989.
Boomers, COVID-19, and the widening gap
Amidst this financial landscape, it's crucial to acknowledge the hidden inequalities exacerbated by the COVID-19 era. The surge in equity holdings had propelled the average equity holdings of individuals over 65 to approximately $1.8 million by the end of 2022.
This seemingly positive statistic, however, obscures the harsh reality millions of older Americans face. The pandemic has heightened the rift between those who possessed assets like homes and stocks pre-pandemic and those who did not, widening the wealth inequality gap.
The Federal Reserve's data inadvertently masks the struggles of over 1 in 10 Americans over 65, grappling with poverty. The widening wealth gap is a poignant reminder that while some boomers are riding the crest of a financial wave, others are navigating stormy waters and looking for ways to get ahead financially.
In short, those who were invested in the stock market from years ago fared well — and those who were not fared much worse.
Hot other generations can catch up
For younger generations witnessing this wealth accumulation spectacle, lessons must be learned and strategies adopted. While it's tempting to attribute boomers' success solely to market timing and real estate, a nuanced approach is needed. The changing nature of work, retirement, and the evolving economic landscape demands adaptability.
1. Embrace Financial Literacy: Understanding the intricacies of investing, homeownership, and market trends is imperative. Boomers who navigated these waters successfully often did so with a keen understanding of financial principles.
2. Leverage Technology: The younger generation has a powerful technological ally. Utilizing digital platforms for investing, learning, and exploring entrepreneurial opportunities can be a game-changer.
3. Diversify Investments: Relying solely on traditional investments may not yield the same results in today's dynamic financial environment - these are not our parent’s markets. Exploring diverse investment avenues and staying agile is key.
4. Plan for Retirement Early: The changing landscape of retirement demands a proactive approach. Starting retirement planning early and exploring alternative retirement models can pay dividends in the long run, as evidenced by the boomers’ long-term success.
5. Advocate for Economic Equality: Recognizing and addressing the wealth gap is a collective responsibility. Advocating for economic policies that foster equality can create a more level playing field for future generations.
The Baby Boomer wealth surge is a multifaceted story that extends beyond mere market gains. Perhaps the greatest financial lesson younger generations can take from the boomers is the importance of time in the market. Boomers invested young and stayed invested, which was a critical part of their success.
As the old adage goes, time in the market is more important than timing the market, and boomers have shown us that investing early and staying the course pays off. The advantage younger generations have is time, and they can use it to their advantage by investing as much as they can into their 401ks, IRAs, and the like and allowing the time they have ahead of them to work for them and their money.
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